While building contractors around South Africa have dropped their prices to break-even levels to secure work, the reality remains that it is more expensive to build than to buy a second-hand property. And figures compiled by both Absa and FNB illustrate this point.

He says that he sold a home recently for R8,7 million that would cost at least R12,5 million to build today excluding the design costs or holding costs.

“Now is not the time to be building,” says Du Plessis. “You need to be a skilled negotiator, need to have a good professional team working with you and must employ a lawyer to make sure that the building contracts are water-tight because otherwise cost over-runs will come as a nasty shock,” he warns.

He says the shortage of skilled labour in South Africa is a further problem because it is proving more and more difficult to find skilled craftsmen capable of doing a decent job of fitting cupboards, installing kitchens or doing the plumbing.

Du Plessis points out that while South Africa’s architects are on a par with the best designers in the world, the stark reality is that these architects tend to lose sight of the eventual price of the property and in their eagerness to get the job done properly, they ignore the reality of a budget.

“People building new homes tend to forget just how expensive it is to buy the fixtures and fittings they want. They under-estimate the costs of tiling and carpeting, of kitchen appliances and cupboards and all these costs mount up,” he says.

In his experience, the cost of building a new property is invariably about 30% more than the original estimate and, if the landscaping costs for the garden are included then these can add another 5% or 10% to the property’s costs.

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Property investors are making use of deposit guarantees as an alternative to cash deposits.

In a statement on Tuesday, Lombard Insurance said property investors were understandably loath to liquidate their investments merely to finance the deposit on a property purchase.

This had resulted in alternatives and interim finance mechanisms such as deposit guarantees which replaced the cash deposit required between signing a sale agreement and the payment of a purchase price of a property.

According to Antony Solomon of Lombard Insurance, one of the benefits of deposit guarantees was the ability they afforded residential buyers to purchase homes immediately after the sale of existing properties.

“Buyers don’t have to wait for the proceeds of the sales before they can put down deposits on their new properties.”

Deposit guarantees were also tax efficient.

“The interest earned on cash deposits is not only generally quite low but is also subject to income tax, making the net return to the purchaser very paltry.

“Conversely, the cost of deposit guarantees is, in the case of a purchase for business purposes such as a rental enterprise, a tax deductable cost in the production of income.”

He said it was also, in all circumstance including private home purchases, a tax deductable expense when calculating capital gains liability.

“By offering astute property buyers an intelligent and cost-effective deposit funding alternative, we believe deposit guarantees will help to attract more qualified and serious buyers to the property market.” - Sapa

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To speak to a home loan consultant about financing your new property or reviewing your existing mortgage. We are able to assist in lowering your bond repayments and securing attorney discounts.

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